Product Price Prediction III – February 2020
Like the wider oil industry community, OPC are affected by product prices and thought a three-monthly commentary of key data and how future prices may react would be a useful tool for OPC subscribers.
If you are interested in price predictions or any other commercial request OPC’s experienced team are here to help!………
One year ago: “2018 was another rollercoaster year for oil markets, with prices starting the year on a steady upward trend, reaching the dizzying heights of $85/bbl in October, before plunging in the final quarter to end the year at close to $50/bbl” (after BP Statistical Review)
Yet seemingly a year on and prices exhibit some harmony around $60/bbl.
Will the early 20’s be about stability? or is it just coincidence that for every positive factor there is seemingly a negative one at the present time.
Or is the next lap of the rollercoaster just around the corner?
Current price explained
The international Energy Agency (IEA) suggests that the calm in crude oil prices despite recent tensions in the Middle East is explained by the strong growth in non -OPEC production. Also, OECD stocks are above their five-year average. The IEA forecasts non-OPEC oil (total liquids) production to grow by 2.1 MMb/d in 2020 compared with global oil demand growth of 1.2 MMb/d – creating an inventory build of some three-quarters of million barrels per day. Non-OPEC crude oil production will still be driven by the United States (approaching 13 million barrels per day), but also by Norway, Canada, Brazil and Guyana. This additional supply will put downward pressure on prices, with Brent averaging in the low 60’s.
Gas prices have seen a wholesale drop, with the US below $2/mbmtu – Gas being at its weakest seasonally in the U.S. and Europe since the late 1990s. LNG prices are on track to hit an all-time low in Asia later this summer, to the point that shutdowns aren’t far away; there’s a surplus already in the U.S. and Europe, and a mild winter in Asia means another surplus is building up there too.
Political / Economic / Socio factors
Political / economic and socio factors figuring in the oil price cocktail include:
- China slowing economy and current Virus scare [estimation of a potential $3/bbl impact]
- Europe recession concerns, coupled with Brexit and possible a sustained Boris “Bounce”
- Trump has impeachment issues and re-election, supported by an enduring bull market
- Middle East is amazingly quiet after the Iran issue.
- US Unconventional keeps on rising, yet there is a slug of debt maturing this quarter [c. $40billion] which raises the question over sustainability for the investor
OPC Oil Price Forecast
All in all, OPC’s $60/bbl forecast from our previous price prediction seems still good – with our long term “punt” that the mid 2020’s may see a price high – US plateauing and a dearth of additional supply, hence rising prices – before alternative power sources gather momentum towards the mid 2030’s reducing oil demand somewhat
Constant prices, around $60, with fluctuations
John Wright is the senior consultant Petroleum Economist for OPC. He has more than 25 years’ experience in oil and gas, initially within petroleum engineering and then specialising as an Economist within CNR, Amerada Hess and BG Group. He has worked as an expert petroleum economics consultant for more than 10 years, supporting a wide range of E&P companies and investors with economic modelling, portfolio valuation, fiscal agreement negotiation and decision analysis.
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